When Businesses Develop New Businesses
By Barbara Elmore
Before one tries to define what internal corporate ventures are, it's important to note what they are not.
Although internal corporate ventures involve people and entrepreneurship, they are not the same things as individuals starting a business. And although they might involve new products and processes, they are not the same as new product development.
The distinctions are key to getting the right answers about what makes an internal corporate venture work, said Kevin Johnson, a new professor at Baylor's Hankamer School of Business. His research reveals fresh information about corporations starting new businesses, and why they fail. He's looking for answers that will help them succeed.
The former engineer turned businessman turned professor is just beginning his work in the broad area of corporate entrepreneurship. The themes he's focusing on include internal corporate venturing, new venture creation strategies and business and technology innovation.
The distinction between individual and corporate entrepreneurship is an important one because of the dynamics that take place, said Johnson -- "not the least of which are the resources available," he said. The individual entrepreneur generally has more limited resources than the established corporation.
It's important to separate product development from the study, too. Although developing new products within an existing corporation might overlap with internal corporate ventures, new product development doesn't require the establishment of a new organization, noted Johnson, and is not intended to. A new corporate venture is one that becomes a new business, he said, using the example of a refrigerator manufacturer taking his product into the recreational vehicle market. "Adding new features is not a new business," said Johnson. "That's product extension or modification. When the refrigerator was taken into the recreational vehicle market, that represented a new business. Think of a hospital starting a business to provide fitness training. It can be a new business for them."
A new venture can be based on a product, market, technology, service, or a process, he noted. And research into internal corporate ventures is important because they represent economic growth and development for corporations and the communities they serve. Further, corporations invest billions in new businesses to remain innovative, competitive and avoid stagnation.
Even so, the majority of new ventures fail. "We're not talking about 50-50," he said. "We're talking about 90 percent." Depending on how one defines failure, the rate can sometimes drop to 50 percent. "Fifty percent is still no better than chance, and we want something better than that."
His goal is to find out what drives success for new corporate ventures, and one important discovery shows that the skills that go into successfully running a business are not the same skills that go into starting a business. "Established managers think they can start up a new corporate venture," Johnson said. "But the same skills don't work."
Experienced managers also might think they can successfully create a startup venture because they are doing product development. "It's not quite the same," Johnson noted.
Johnson has developed and tested a new model based on performance. Some of his findings are in the areas of processes, resources, strategy and structure. Here's how some of those have played out thus far:
Johnson defines similarity in terms of product, technologies and markets, and looks at how the new venture is related to what a corporation is already doing. New ventures differ somewhat from a corporation's existing businesses, but most research indicates similarity is important. Johnson is testing that assumption.
His preliminary research, gleaned from surveys and interviews, shows that lots of money is not the answer, but having the right people in place may play an important role. "Organizations are actually starting to train people to be entrepreneurs within a company," he added.
Putting more financial resources into a new corporate venture may lead to complacency, he noted. "You don't have the desire, the motivation, the urgency if you have tons of resources available to you. The independent entrepreneur has that urgency. It focuses their efforts."
Other areas Johnson examined include autonomy, strategy, and positioning. He asked such questions as, "When you have a business startup, how do people working on that startup get compensated? There could be conflict between startup and existing businesses within a company. There's a struggle for resources. How do you organize the venture around existing businesses? Is it linked structurally with them, or is it located somewhere else?"
His current research also studies whether managers of a venture need to go
into it with a plan.
"Preliminary examination shows that it looks planned," Johnson said. "That suggests to me that managers need to have a goal in mind -- what they're going to do and how to do it. What I suspect is going on is that the strategy could actually be changing as the venture is developing."
Corporations of course believe their ventures will add value to their company, Johnson noted. "When I ask my respondents about what I call the X-factor, I ask how clear were the venture managers in terms of this X-factor. It was important that the organization understood this X-factor."
Although this is last on his list, it might turn into one Johnson's more important discoveries. Also important is the similarity between that venture and the parent company, "because it affects our understanding of the market or the products or technologies. Also, because it is a new business, what is its X-factor? These two tie together."
Johnson believes some of his findings may challenge prior research, which would suggest that the landscape has changed. "What worked in the past may not work today," he added.
The Kentucky native received his bachelor's degree in engineering science from Dartmouth and worked for several years before getting his master's in business administration and his Ph.D. at Indiana University. Although he enjoyed business, he knew he'd have to move to different areas of interest if he wanted to climb the corporate ladder and make a difference. "So I had to decide whether to stay in business and move on to other things, or go into academia," he said. He got involved in corporate entrepreneurship in the academic world because he found it exciting and it was related to what he was doing in the business world.